The attackers.
First off, the attackers (the unarmed mob) don't react to any damage they might receive from the weapon because that makes the practice harder. It's hard to guess at what kind of damage you might inflict on a cut, and hard to guess how different people will react to it. Some people receive lots of damage and keep coming, others get a paper cut and go home. So in the practice we make it a worse case scenario.

Personally, I teach my students that some knife cuts are not fatal (or at least, not immediately so) and others are. I urge them to react to being "cut" accordingly. If you get a slash or stab in the meat of the shoulder, or the outside of the thigh, for instance, you can keep moving -- and must -- in order to increase your chances of survival. But if you get stabbed (or slashed) in the throat or neck, the underside of the upper arm, the inside of the leg, the chest, kidneys, or spine, etc. you're basically dead meat.

Since it is so easy to be fatally wounded in knife attacks, and most people realize this, it is not likely that even a group of unarmed people will be willing to attack someone waving a knife at them. Why, then, would I engage in a practice that is based on such an unlikely situation? What's wrong with practicing blending and flowing without a knife? What specific benefit does the introduction of the knife into the situation offer to the development of blending?

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They do try to treat the knife as if it's real, but they also have an objective to achive-take the armed man down. doing it without getting cut/stabbed is the objective, but that objective is very hard.

The objective is hard -- potentially lethal, even -- so why make it harder by preventing them from striking? The defender would be far easier to deal with if he/she could be struck before or while a controlling measure was applied.

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The target is the guy holding the knife, not just the knife and not just the guy. Just like when doing multiple attackers I don't face 3 individuals but 3 people as a whole. Using the knife on the move is part of the practice. If you've never tried it I think you'd be surprised at how difficult it is to use a knife and try to blend at the same time.

It is only difficult when they keep coming in spite of being "wounded" by the knife. It is relatively easy to cut and blend (or blend and cut, whichever) and kill several unarmed attackers with a knife.

Jon.

"Iron sharpens iron; so a man sharpens the countenance of his friend."